Equity Investment Documents
Equity Investment Documents
If you are an Entrepreneur looking for equity investment in your company, it is important that you know about the investment documents. The investment documents mentioned here are the key legal documents that details the right and responsibilities of all the stakeholders involved in the transaction.
Shareholders Agreement
Shareholders agreement is a legal agreement between the shareholders of a company. Shareholders agreement are executed by an investor in the company to put down the expectations of each party in writing, establish a fair relationship and govern the operation of the company. Some of the key areas covered in a shareholders agreement are:
- Rights and obligations of the shareholders.
- Rights and obligations during sales of shares of the company.
- Right and obligations of the Company Management.
- Rights and obligations of the Investor.
Though the Articles of Association addresses some of the areas mentioned in the shareholders agreement, it is important to have a customized shareholders agreement in place while making or receiving an investment in a company.
Share Subscription Agreement
Share subscription agreement is a legal document between the investor, investee and company detailing the offer by the company to sell a given number of shares to an investor at a certain price, and an agreement by the investor to pay that price to purchase the shares. Hence, the share subscription agreement spells out the details of the investment transaction, including the price and agreed upon amount of the shares.
Term Sheet
Term sheets are NOT a promise or legal contract to make an investment in the Company. Hence, a signed term sheet does not guarantee an investment in the Company. However, a term sheet is a legal contract that has various clauses to keep the investment negotiations confidential, prevent the company from looking for other investors during due-diligence, amount of investment in the company, valuation of the company, type of share to be issued and other details of the transaction.
Capitalization Table
Capitalization table lists the company’s shareholders, the amount and type of shares held by each of the shareholders. Thus, capitalization table is an invaluable tool for recording and keeping track of ownership stakes in a company – pre and post an equity investment.
